New York court allows town to restrict fracking, but a different result likely under Michigan law

"It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." Justice Louis Brandeis

The exploration and extraction of natural gas from shale formations using a process known as "hydrofracking" or just plain "fracking" is an issue that Michigan (with its Antrim shale formation) has in common with several other states. But, as the states are free to regulate natural gas activities within its own borders, similar factual situations may result in different outcomes. One example comes from a recent decision regarding a local municipality's attempt to restrict where natural gas exploration and extraction could occur. That state court's decision would likely have a different outcome in Michigan.

On February 21, a New York Supreme Court judge (in New York, the "Supreme Court" is the trial level court, like the "Circuit Court" is in Michigan) refused to reverse a local zoning law that forbade the exploration for, production of or storage of natural gas and petroleum within the town's jurisdiction. The local government passed the restrictive zoning ordinance in response to citizens' concerns about the hydrofracking of the Marcellus shale formation for natural gas, over which the town sits. A company that obtained gas leases for 22,000 acres in the town prior to the enactment of the zoning ordinance challenged the ordinance, claiming that it was preempted by New York state law governing exploration for and extraction of natural gas and petroleum.

In refusing to reverse the local zoning ordinance, the court determined that the statute in question did not expressly preempt local zoning ordinances. It did preempt ordinances that directly regulated to technical aspects of gas exploration and extraction, but specifically stated that ordinances regarding land use were not preempted. The judge was not persuaded that the ordinance regulated natural gas operations, but was a proper exercise of the town's zoning authority, also provided by statute. The court only reversed one aspect of the ordinance, which provided that any permits issued by any other authority were deemed invalid, finding that the town did not have the authority to invalidate decisions made by other legal authorities. Nonetheless, the town could, in effect, prevent any and all exploitation of the Marcellus shale formation within its borders.

The court noted that other state courts have ruled in a similar manner. Specifically, the Pennsylvania Supreme Court ruled that a zoning ordinance that attempted to restrict the placement of a well in a manner that was inconsistent with setback requirements in the state statute, the state requirements preempted the zoning ordinance; however, zoning ordinances that did not deal specifically with issues regulated by the state law would remain valid. The Colorado Supreme Court has ruled that zoning ordinances would only be preempted if they presented an operational conflict between the local ordinance and the state regulatory scheme for oil and gas exploitation. The New York court determined that the town's ordinance did not conflict directly with the state's oil and gas laws as they did not attempt to regulate operational aspects, but only land use issues.

In Michigan, the issue would likely be decided in a slightly different manner. As I noted in an earlier blog entry, a new Michigan statute recognizes that local zoning ordinances may affect attempts to exploit mineral resources. The exploitation of those mineral resources would be allowed in the face of an ordinance restricting it if the one seeking to exploit those resources demonstrates the following: (1) that there are valuable natural resources on the property; (2) that there is a need for the natural resources, either by the owner or the market at large; and (3) that no very serious consequences would result from the extraction by mining of the resources. In the event that showing is made, then the court will make its own determination as to the impact of the development on local resources and the community.

Like the courts in New York, Pennsylvania and Colorado, Michigan recognizes that local zoning ordinances may affect a party's opportunity to exploit its mineral resources. But, unlike those other states, a court's review will determine that even if Michigan's oil and gas legislation does not expressly preempt the local ordinance, the court must still balance the interests of those wishing to exploit the mineral resource with the stated purpose of the zoning ordinance in determining whether to uphold the local ordinance.